Student with no job denied credit

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

Dear Opening Credits,
I am a 22-year-old medical
student. I opened a Capital One student card in August of last year to start
building my credit. So far it seems to be a slow and tedious process,
especially since it is very easy to reach my $500 credit limit before the end
of the month. I pay off the entire balance every month and sometimes twice a
month.

I am interested in opening an Amazon credit card because I make most of my
purchases from the online store and really want the rewards. Plus, I will only
purchase what I know I can pay off. But Amazon rejected my application on the
grounds of, "a small length of time account has been established, too few
accounts currently paid as agreed, and proportion of loan balances to loan
amount too high."

I can understand why it has not been long enough since I
opened my last card, but when will it be long enough? And as for my student loan,
I am a medical student and this loan will be shadowing me for a very long time
as it is my major source of income at this point. Will it always prevent me
from opening another credit line? Is there something I can do to improve my
chances for being approved for a new credit card to build my credit? -- Meredith

Dear Meredith,It's true that establishing a robust
credit profile is not a swift process. Prospective lenders will assess your
credit reports and credit scores to determine if it would be wise to do business with you. In general, they like to see that you've borrowed and repaid
money responsibly for at least a year and preferably much longer than that.

Delays can be frustrating when you're
eager to get that higher limit card. Think of a credit rating as you would the reputation of a
surgeon, anesthesiologist or any other medical professional. To gain trust, a doctor will need to perform specific procedures
many times and under a variety of circumstances. A few months' training won't
be sufficient to give anyone adequate assurance.

The good news is that you're already in
the "residency" period of credit establishment. You have an account and,
though the credit line is small, you use it regularly and correctly. All activity
is appearing on your credit reports and since credit scores are derived from that
information, it's creating a healthy rating. You may not be feeling the
positive effects just yet, but keep up the good work.

FICO scores give greater weight to some actions than others. Always paying by the due date is crucial, as that
comprises 35 percent of a score. Maintaining low balances is the next most
vital, at 30 percent. Length of credit history is 15 percent, so simply having
and using your card is working in your favor. The last two factors -- types of
credit used and new credit inquiries -- are minor, at 10 percent each. Applying
for many loans and credit lines in a short period of time appears desperate, so
keep inquiries to a minimum.

Amazon turned you down for its credit
card not just because you're a credit newbie and haven't built a high enough
score yet, but also probably because you're not working and are already
financially overextended. It sounds like you've been using student loans as
your primary income source. While you've been able to cover your expenses with
them, a credit card company may not consider that money as regular income.
Rather than earning the cash, you're borrowing it.

So how do you overcome these problems?
Wait. Once you gain employment and the paychecks start flowing, you'll be in a far
better position to be approved for that Amazon card. Your FICO scores will rise
with continued, excellent credit activity, which includes repaying your student
loans.

In the meantime, if you want broader
borrowing power, ask your current credit card company for a limit increase.
Consider it your first patient. If you do well, others will follow.

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Published: April 10, 2013

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